The great start-up experiment

Yesterday I had the pleasure of hearing Professor Jeffrey Pfeffer speak on “Profiting from Evidence Based Management”.”What is that?” you may ask. Put simply, evidence based management is the mindset of striving for fact-based decisions and actions. And I’d contend that it’s particularly critical for start-ups!

Doesn’t everyone use evidence in making decisions?

Actually, no! It turns out that fact-based decision-making is surprisingly rare. Most organisations and people make decisions using practices such as:

  • Casual benchmarking:  Company XYZ does this, therefore we should.
  • Belief:  Obviously, ABC is the most effective way to _______
  • Experience:  Trust me, I’ve seen this before and ____ is the way to go

What’s the problem with the status quo?

What’s wrong? Nothing less than low regard for management and a poor track record of results.

Research by various HR consultancies globally shows a staggeringly high level of employee disengagement, distrust of management, and even active sabotage within organisations. Anyone who has worked within an organisation has seen this in action, but systematic research confirms your experience.

Many industries also show a huge level of wealth destruction or foregone profits from poor decisions, including some errors that almost all competitors are making consistently. The airline industry is a classic example cited by Professor Pfeffer, with its unbundled pricing – i.e. charge extra for luggage, for a drink, for booking by phone, etc etc – which goes against a host of research into consumer behaviour that shows that lots of small costs are perceived to be worse than a one-off cost of the same amount.

Take an experimental mindset

The best firms, according to Professor Pfeffer, view their business decisions as experiments. Rather than just acting on their belief, prior experience, or some casual benchmarking – they ask themselves what assumptions they have about the situation, and then try to collect some evidence on the subject.

Often there is a wealth of data freely available on the internet. But even if there isn’t, or it’s unclear how it applies to your situation, the best thing is to do is run a series of experiments.  Try something! Then measure what happened and check what it means for your assumptions. Repeating this behaviour – and building a mindset of ongoing experiments – enables you to consistently focus your limited resources to greatest effect.

The great start-up experiment

Startups operate in an environment of relatively high uncertainty. Finding ways to systematically reduce that uncertainty and achieve greater bang for your buck can be a huge competitive advantage.

My time in startups has taught me that this experimental mindset can pay real dividends. Sure, it takes guts and you have to be brutally honest about what you don’t know. But it keeps your mind open to opportunities, enables you to learn and adapt quickly, and can make the difference between being a success or an also-ran.

For more on evidence-based management, check out www.evidence-basedmanagement.com or Professor Pfeffer’s book Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence-Based Management
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